Walmart subsidiary Jet.com to buy ModCloth for less than $75m

Online fashion retailer ModCloth, known for its vintage-inspired and indie apparel, is on the verge of being acquired by Walmart, by way of its subsidiary, Jet.com. The deal, which had already been rumored, is almost finalized and will fetch a price tag between $50 million and $75 million, sources tell TechCrunch.

This is a disappointing outcome for ModCloth, which had raised $78 million from notable investors like Norwest Venture Partners, FLOODGATE, First Round, and Accel Partners. (However, Norwest and Accel also invested in Jet). We are told that some of the capital will be going back to investors, but not all of it. Some of the acquisition money will go to retaining key employees.

The acquisition comes after a series of struggles for ModCloth, including several rounds of layoffs. The company saw little growth in 2014, and reduced its engineering team to just over half a dozen. In 2015, co-founder and CEO Eric Kroger was replaced by Matthew A. Kaness, previously Urban Outfitters’ Chief Strategy Officer – a move which staff were then fairly optimistic about, hoping for a turnaround. The management team was also largely revamped in 2015.

ModCloth also installed Nicolas Genest, the prior CTO of the European site vente-privee.com and The RealReal, as its CTO, replacing Udi Nir, who served as CTO from Dec 2012-2104. It overhauled it technology stack to scale the business. And it brought in Phil Neri, previously CFO of Serena & Lily, as its CFO that same year.

The initial plan was to use retail stores as part of its turnaround effort. This began with pop-ups in places like L.A. and San Francisco, and later, a retail store in Austin carrying a full range of sizes. The company also doubled down on its private label products and exclusives. These efforts were funded through a $15 million inside round in 2015.

The initiatives were paying off, with a profitable year of growth that year, Bloomberg reported.

That said, the company still needed more growth capital to follow through with its plans, and was failing to raise. Layoffs continued during 2015 and 2016, which led to a downturn in employee morale. In a series of Glassdoor reviews, the CEO and exec team were taken to task for their decision-making, approach to the brand, and overworking an already stretched-thin staff, among other things.

Walmart, meanwhile, has been snapping up smaller online retailers in recent months, most notably Jet.com, the company Walmart bought for $3 billion dollars last summer. Jet.com itself acquired Hayneedle and a Zappos competitor called ShoeBuy. And Walmart just last month bought outdoor retailer Moosejaw.

At the time of the Moosejaw deal, Walmart explained that it’s increasingly interested in the apparel category, given it’s now one of the largest for online retail, according to comScore. Walmart rival Amazon has been expanding into fashion itself, and even everyday wear like workout clothing, bras, and men’s shirts.

Jezebel first reported on the ModCloth acquisition, citing an anonymous employee source who recorded the all-hands meeting. We understand their report is accurate, and the leaked recording came from the meeting in Pittsburgh. Internally, the deal is being positioned as one that it will allow ModCloth to grow. However, when the company talked about the cultural fit with Jet, many employees laughed, Jezebel’s report said.

ModCloth does seem like an odd fit for Walmart, even by way of its more youthful brand Jet.com.

Its clothing is popular among a certain type of young, female shopper – one who’s generally young, progressive and feminist, and shops according to those values. Its brand in the past has exemplified these traits through its support for things like equal pay and equal representation in the workplace, as well as support for a wider range of sizes than often found in traditional retail. These efforts earned it many fans.

Walmart, however, tends to be viewed differently by this demographic, shall we say.

Already, members of a ModCloth fan Facebook group are complaining and lamenting about this news in their online discussions. Many are vowing to never shop ModCloth again, as a result.

“Noooo,” “barf,” “ruined,” “f***,” “deleted,” and “ughhhhh,” are among the many comments being shared now in the private ModCloth Lovers, Buy Sell and Trade group, for example. Similar sentiments of disappointment and disgust can be found on ModCloth’s Facebook page.

Even if a portion of ModCloth’s base abandons it, Walmart has bought itself a good wholesale clothing business from a well-liked brand.

Founded in 2002 by Susan and Eric Koger, ModCloth had raised $78.7 million in funding from Norwest, Accel, First Round, Floodgate and others, according to data from CrunchBase.